Market Valuation and Merger Waves

In this: publication
By this: publisher
In this Subject: Finance
By this author: MATTHEW RHODES-KROPF ;&nbsp; S. VISWANATHAN

Authors: MATTHEW RHODES-KROPF; S. VISWANATHAN

Source: The Journal of Finance, Volume 59, Number 6, December 2004 , pp. 2685-2718(34)

Buy & download fulltext article:

Price: $48.00 plus tax (Refund Policy)

Abstract:

Does valuation affect mergers? Data suggest that periods of stock merger activity are correlated with high market valuations. The naïve explanation that overvalued bidders wish to use stock is incomplete because targets should not be eager to accept stock. However, we show that potential market value deviations from fundamental values on both sides of the transaction can rationally lead to a correlation between stock merger activity and market valuation. Merger waves and waves of cash and stock purchases can be rationally driven by periods of over- and undervaluation of the stock market. Thus, valuation fundamentally impacts mergers.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1540-6261.2004.00713.x

Publication date: 2004-12-01